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# how to figure the profitability and ratios

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I need help as financial statements, math, and ratios are greek to me. I need to pull together about 200 words...not a lot on the topics below from the financial statements provided via the links. Can you please help me understand and show how to figure the profitability and ratios in a way that I can understand? we are thinking of acquiring pepsi and comparing it to its competitor...coke.

compare companies two most fiscal years:
- profitability
- management efficiency ratios
- leverage ratios

http://www.pepsico.com/PEP_Investors/AnnualReports/06/index.cfm

http://www.thecoca-colacompany.com/investors/pdfs/form_10K_2006.pdf

https://brainmass.com/economics/risk-management/how-to-figure-the-profitability-and-ratios-166878

#### Solution Preview

compare companies two most fiscal years:
- profitability
- management efficiency ratios
- leverage ratios

Financial Ratios
Financial statements are useful tools for evaluating both profitability and liquidity. Financial Ratios are used to gain an understanding of a company's financial performance. Therefore, it is important that companies like PepsiCo, Inc. and Coca-Cola maintain accurate detailed financial statements to ensure that the correct financial performance is presented to the public. Unfortunately, inaccurate financial statements, such as a company's income statement and balance sheet, can negatively influence potential investors and creditors and even make the company legally liable.

Leverage ratios

The times interest earned ratio is a measure for determining if a company's earnings are sufficient to cover interest payments. This type of ratio is commonly used by creditors to determine a company's financial advantage. The times interest earned ratio formula applied to PepsiCo, Inc. and the Coca-Cola Company is as follows:
Times Interest Earned Ratio = EBIT / Interest Payments

PepsiCo, Inc. Coca-Cola Company

2005 2006 2005 2006

6,382 / 460 6,989 / 550 6,690 / 675 6,578 / 75
= 13.87 = 12.71 = 9.911 = 87.71

Coca Cola has better solvency in 2006.

Profitability
The net profit margin is a profitability ratio that focuses on a firm's earnings. This ratio helps to highlight a company's ability at controlling costs by determining how efficiently revenues are converted into profit. Basically, the net profit margin ratio is used when "...you want to know the ...

#### Solution Summary

How to figure the profitability and ratios of companies is guided here.

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## Sales Ratio, Break-Even Point, and Profit Volume Chart

The Varihary Company manufactures 2 products, Sintax and Gremmer, which sell for \$10 and \$ 15 respectively.

The following Figures apply to the year ended 30 September 2002.

Sintax Gremmer.
Sales \$90 000 \$30 000
Variable costs per unit \$ 6 \$ 12

Fixed costs for the company amounted to \$ 10 000.

(a) Calculate the number of units of Sintax and Gremmer sold during the year ended 30 September 2002.
(b) Calculate the contribution to sales ratio for each product for the year ended 30 September 2002.
(c) Calculate the contribution to sales ratio for the company for the year ended 30 September 2002.
(d) From the following profit/volume chart for the company for the year ended 30 September 2002 determine the break-even point ,the profit or loss at the present sales figure and the profit or loss at sales of \$ 20 000.Indicate clearly whether these are profit or losses.
For the year ended 30 September 2003 the company expects to increase total sales revenue by 10 %, half of the total increase to apply to each product. Unit prices and costs will be unchanged, and fixed costs will remain at \$ 10 000.
(e) Calculate the number of units of Gremmer and Sintax which the company expects to sell during the year ending 30 September 2003.
(f) Calculate the contribution to sales ratio for the company for the year ending 30 September 2003.
(g) Draw a profit Volume chart for the company for year ended 30 September 2003, showing break-even point, and profit or loss at the expected sales figure and at sales of \$6000.

Please see attached for full question.

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